Exploring how increasing inequality and pervasive corruption are likely to force the re-scripting of Indian growth story

On July 16, Time magazine published a cover story depicting Indian Prime Minister Manmohan Singh as ‘The Underachiever’. That was followed by a frenzied debate in India so as to whether that stark a conclusion was appropriate or even justifiable. First as the Minister of Finance during the pivotal years in early nineties and as the two term prime minister over most of the past decade, Singh has been popularly believed as the man behind the liberalization of Indian economy, even though some others doubt this belief. It has been felt for long in India that Singh’s government is fluttering and has failed to live up to the expectation of most, especially after a string of mammoth financial scandals descended upon India since late 2010. His unreserved labeling as the ‘underachiever’ by a foreign magazine, however, came as a shock to many.

After an exhausting two-year period when the government was haunted by one scam after another, many had assessed that the beleaguered government in New Delhi had hit lowest possible. Amid the stubborn street protests and fasts that purportedly intended to end corruption and consciously portrayed the government in very bad light, with general elections in 2014 approaching fast, the ruling alliance has been understandably dreading the reversal of gains made in last general elections.

Then comes the new scandal with a bang to prove that the government’s prestige still has the scope of plunging further: the report of the Comptroller and Auditor General (CAG) on coal block allocation pointed that the government had incurred a loss to public exchequer to the tune of Rs. 1.86 trillion by shunning the process of competitive bidding in favor of more convenient and opaque methods for the purpose. The fact that the PM himself held the related portfolio from 2004 to 2009 is adding insult to injury.

What is now widely termed as ‘coalgate scandal’ threatens to erase any leftover appeal, popularity and credibility of the Singh-led government in India. Even though the opposition alliance led by BJP may not be able to cash out the newly discovered scandal to the extent it wishes and every repercussion of the clash between the two sides may not be favorable to the opposition, the damage to the ruling alliance is sure to be tremendous. This episode is different from every other scam in the past because none of them had directly implicated PM Singh and opposition parties did also have their own share of scams comparable to those of allies in the government. The opposition’s demand of PM’s resignation also stems from the fact that the more they can throw this government in disarray, the more the likelihood that their luck will catapult in the upcoming polls.

While the print and electronic media in India are now busy with hysteric coverage of the events surrounding the fiasco that has led to deadlock in the parliament, here we will pursue a slightly different angle of the developments.

While the process of India’s liberalization was laudably workable and did impact the lives of millions of people positively with a significant proportion of population having been liberated from the clutches of poverty to enjoy the privileges of the middle class, that was only one dimension of the developments (the other dimensions to be dealt with in later part of this article). It was also natural for the people to aspire for better position for India in world stage as the logical outcome of an increasing political clout that often accompanies the increasing economic prowess. Both celebration of the high growth rate of economy with accompanying encouraging social changes and the increasing recognition of India as legitimate rising power in international stage were behind the India Shining narrative that has flourished for most of the time over the two decades since 1991.

Even though the then ruling coalition led by BJP faced an unpleasant defeat in 2004 with the formal ‘India Shining’ slogan, the essence of the narrative itself thrived very well till the general elections in 2009 and shortly thereafter. Ever since the Indian National Congress (INC) parted ways with the then coalition partners, the Left parties, in the aftermath of the civilian nuclear deal with US signed in 2006, which heralded a new era when the reforms desirable for the process of further opening up the economy could be brought about without hindrance from the allies. The bitter routing of the leftist parties in the 2009 polls and unambiguous victory of the INC-led coalition seemed to make further liberalization and acceleration of growth in India inevitable.

Yet, now barely after three years of triumph of the liberalizing forces, Manmohan Singh stands as a dejected and frustrated leader with his image of impeccable integrity and incorruptibility vanished in thin air. The growth has slowed and the investors now point to stalled reforms and policy paralysis as main hurdles while the government is forced to focus in fending itself from corruption scams. With every political party in the country inventing its own strand of populist politics with an eye to 2014 polls, more finger-pointing and new feuds are to be expected now rather than any constructive engagement on policy issues.

So, what is behind this troubling saga of subversion of whole India Shining narrative just when everything was supposed to be in its proper place after the 2009 polls? While the political stability brought about by the full term governments after the 1999 and 2004 polls contributed so significantly to growth of GDP as well as the reinforcement of the India Shining narrative, why did the same after 2009 polls falter so badly? Having weathered the worldwide repercussions of the US-centered financial meltdown of 2008-2010 relatively well, India had emerged as one of the most resilient economies. Yet the cumulative shock of the multiple episodes of fraud and mismanagement now threaten to derail the economy. If a hung parliament after 2014 and succession of unstable governments add to the chaos as dreaded, it will be exceedingly difficult to move forward.

Coming to the question of who is responsible for this radical transformation in India, many analysts have chosen the convenient way of shifting blame for stalled reforms and consequent slowdown of economy from PM Singh to Sonia Gandhi, the president of INC who is being accused of ‘harking back’ to the socialism of Indira Gandhi. The other prevalent belief, especially in the streets is that the Indian politics is just dominated by too many immoral and corrupt people punishing and cleansing whom from the system is the only way forward. This was particularly popular belief among the followers of anti-corruption crusaders who heavily drew the public attention over the past year through fasts and other protest programs. As expected, the politicians are always adept at pointing to someone else for any of the problem the society and country faces.

By now, even a teenager in India realizes that the country is in deep trouble for having been governed by thoroughly corrupt people. The Indian public was apparently startled by the statement of the director of Central Bureau of Investigation (CBI) of India on February 13 that Indians were “the largest depositors in banks abroad with an estimated 500 billion US dollars (nearly Rs.24.5 lakh crore) of illegal money stashed by them in tax havens”. While the realistic chances of that amount of wealth ever being retrieved by the Indian state is next to nil, that may well be a small proportion of total wealth misappropriated from the state coffers given the fact that there is little hindrance for black economy to thrive back home. As I explore in one article, other more insidious and subtle forms of corruption at multiple levels with collusion of people all the way from the top to the grassroots have literally jeopardized the access of poor people to services like health and education.

So there is no doubt now that the menace of corruption is too big and needs to be fought and checked to ‘acceptable’ and ‘sustainable’ levels if not eliminated. But how? This is the multi-trillion Rupees question in India now. For the answer, one has to revert back to the early part of the India Shining story when everything was supposed to be alright.

Many early skeptics of the India Shining narrative had cautioned from beginning that not everything was so noble about India’s liberalization and indeed the process had its own costs. While justifiably accelerating the growth rate of economy, it had also increased the gap between the rich and poor. And while creating a much more investor-friendly environment that led to spurt in investment and productivity, it had along the way ignored the question of accountability, on part of the government officials as well as the private companies/corporations. While this did benefit the wealthy both inside and outside the government, it had the ‘unintended’ consequence of further pauperizing the large proportion of population to whom the fruits of shining India were yet to percolate.

The problem all along is that so long as the growth rate was robust and large scale corruption scandals did not erupt on the surface, those at the top kept benefiting by bending rules in their favor with tacit complacency of the middle class which was satisfied with the status quo where only sufferers were the poor and marginalized. While the wealth created as a result of productive activities came to be concentrated in the hand of increasing number of billionaires and their corporations, the poor remained as scattered and voiceless as ever. Unfortunately, the building blocks of growing economy, the fuel and minerals lay beneath the huts of those people and any large dam had to be built submerging their dwellings and farms. Thus for building a new and prospering India, it became necessary to evict those people from their only belongings. This became a major flash point in the emerging struggle between the haves and have-nots in India.

This struggle was also responsible for the subsequent metamorphosis of the India Shining narrative from one with relatively vague but inclusive and forward-looking approach to the chauvinistic, intolerant and belligerent approach where everyone dissenting with the corporate agenda promoted by mainstream media was labeled as ‘Naxalite sympathizers’ (after the armed Maoist rebels popularly known as Naxals). That belligerence increased with intensifying leftist insurgency in the central part of India when the caustic debates spilled over to the media. In another tragic turn, the vocal and decisive upper and middle class also largely condoned the excesses of the state in other areas like North-East, Kashmir and Gujarat where process of liberalization was not the direct force behind the conflict but the conflict itself had enduring ramifications for the whole nation. As a result, the intellectuals were ominously polarized with a bulk of them siding with the state and the corporations that focused on economic growth at any cost, batting for the morphed version of India Shining while a significant minority chose to oppose them.